Tomato, Toma-toe: IRS’s Imperfect Designation of “Immediate Supervisor” Deemed Insufficient to Overturn Penalties Under Code Section 6751(b)(1)

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Cory D. Halliburton

Cory D. Halliburton



Cory Halliburton serves as general counsel and business adviser to a nationwide nonprofit / tax-exempt client base, as well as for multi-state professional service companies. He is a results-oriented attorney, with executive-level strategy and an understanding of the intersection of law and business judgment. With a practical upbringing, he pushes for process-driven results in internal governance, strategy and compliance with employment law, and complex or unique contracts and business relationships.

He dedicated the first ten years of his practice to mainly commercial litigation matters in West Texas and the Dallas-Fort Worth Metroplex. During that experience, Mr. Halliburton transitioned his practice to a more general counsel role, with an emphasis on nonprofit and tax-exempt organizations, advising those organizations through formation, dissolution, litigation, governance, leadership succession, employment law, contracts, intellectual property, tax exemption issues, policy creation, mergers and other. He has served as borrower’s counsel for tax-exempt bond and loan transactions near $100 million aggregate; some with complex pre-issue construction, debt payoff and other debt financing challenges.

Mr. Halliburton also serves as outside legal and business advisor for executive professionals in multi-state engineering firms, with a focus on drafting and counsel on significant service agreements, employment law matters, and protection of trade secrets.

Section 6751(b)(1) of the Internal Revenue Code provides that “[n]o penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination[.] . . .” 26 U.S.C. § 6751(b)(1). In the Tax Court opinion of Long Branch Land, LLC v. Commissioner, No. 7288-19, T.C. Memo. 2022-2 (U.S. Tax Ct. Jan. 13, 2022) (mem. op.), the court addressed what is meant by “immediate supervisor,” as that term is used in Section 6751(b)(1), as well as the doctrine of “presumption of regularity.”

In the case, Long Branch Land, LLC (“LBL”) claimed a $10,425,000 charitable contribution deduction for a conservation easement it granted to a charitable organization as well as a $3,475,000 charitable contribution deduction for LBL’s donation of a fee simple interest in real property associated with that easement. The IRS selected LBL’s return for examination.

With respect to the claimed charitable contribution deductions, the revenue agent decided to assert valuation misstatement penalties under section 6662 and section 6662A of the Internal Revenue Code, and, pursuant to section 6751(b)(1) of the Code, that determination was approved, in writing, by the revenue agent’s “acting team manager.” See 26 U.S.C. § 6662(h) (gross valuation misstatement); id. at § 6662(e) (substantial valuation misstatement); id. at § 6662A (accuracy-related penalties).

Based on a less-than-perfect timeline of the IRS’s internal documentation of appointment of supervisory authority within the applicable examination team, LBL claimed that the purported acting team manager lacked authority as “immediate supervisor” to approve the initial determination of penalties, and therefore, the IRS did not comply with section 6551(b)(1) in assessing the penalties.

The Tax Court did not agree with LBL. The court noted that the Code does not define “immediate supervisor.” But, the court stated, “we have held that the immediate supervisor is ‘the person who supervises the agent’s substantive work on an examination.’” Long Branch Land, LLC, T.C. Memo. 2022-2 (quoting Sand Inv. Co., LLC v. Commissioner, 157 T.C. __, 2021 U.S. Tax Ct. LEXIS 71, *8 (Nov. 23, 2021)) (emphasis added). And, the court noted that, under the doctrine of “presumption of regularity,” the IRS is presumed to have properly discharged their official duties, absent “clear evidence” to the contrary.

LBL did not present clear evidence to overcome the presumption. The court found that the less-than-perfect timing of internal designation of authority of the “immediate supervisor” in question was insufficient to show noncompliance with Section 6751(b)(1). The evidence presented to the court showed – and LBL did not dispute – that the “acting team manager” who approved the revenue agent’s initial determination of penalties oversaw and supervised the revenue agent’s examination of LBL’s return. Thus, the court found that the revenue agent’s initial determination of penalty assessment was in fact approved by the “immediate supervisor” as that term within Section 6751(b)(1) of the Code is construed by the Tax Court.


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